Deutsche Bank Plunges as Panic Spreads, Default Insurance Soars

• Deutsche Bank shares fell 11% on Friday, 26% from a month prior.
• Cost of default insurance for the bank surged to four-year highs.
• The decline in stocks was coupled with other European banks‘ stocks, including Commerzbank and Societe Generale.

Deutsche Bank Shares Plunge

Shares in Deutsche Bank – Germany’s largest lender – began to crash on Friday as financial industry fears continue to spread following a string of global bank failures this month. The fall began to accelerate after the price of Deutsche Bank’s five-year Credit Default Swaps began surging on Friday above 220 basis points (bps). That’s up from 142 bps just two days prior, and its highest point since late 2018, according to S&P Global Market Intelligence.

Default Insurance Soars

The cost of default insurance on the bank’s potential collapse has risen to four-year highs. Soaring CDS costs indicate fear among investors about the bank’s stability, despite the firm’s financial results showing 10 consecutive quarters of profit. The bank reaped $5.7 billion EUR on after-tax profit in 2022.

Credit Suisse Falls

Fears follow the collapse of Silicon Valley Bank (SVB) earlier this month, prompting the Federal Reserve to bail out the bank’s depositors as part of a „systemic risk exception“ shortly afterward. Panic soon crossed the Atlantic when Swiss banking giant Credit Suisse fell by 6%, resulting in an emergency liquidity injection by Switzerland’s central bank – Swiss National Bank – which is ultimately owned by taxpayers.

Other Banks Affected

The fall in Deutsche Bank shares was coupled by declines in neighboring European bank stocks, including Commerzbank (-5.6%) and Societe Generale (-6.48%). This market instability has been further exacerbated by uncertainty surrounding Brexit negotiations and slow economic growth across Europe amid rising inflation rates and sluggish employment figures throughout 2021 and 2022 so far.

Conclusion

The future remains uncertain for Deutsche Bank as well as other major lenders across Europe amidst increasing market volatility and nervousness amongst investors due to recent high profile banking failures around the world this year alone